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The IMF loan: a possible success or failure?

Some people adopt points of view based on a somewhat ideological basis. At the moment, some people either accept or refuse the idea of obtaining a loan from the International Monetary Fund (IMF), despite many countries having made good use of their loans—though some have not. While writing this article I discovered that Al-Youm Al-Sabea …

Some people adopt points of view based on a somewhat ideological basis. At the moment, some people either accept or refuse the idea of obtaining a loan from the International Monetary Fund (IMF), despite many countries having made good use of their loans—though some have not. While writing this article I discovered that Al-Youm Al-Sabea had compiled information about many cases of other countries who obtained IMF loans and how they used these finances.

Jordan

The website Investopedia claims that the IMF has had many stories of success and failure, highlighting Jordan as a successful model. Jordan in 1989 was affected by the war with Israel and the unfortunate domestic circumstances, including a huge economic recession, an unemployment rate that reached 35%, and the difficulty in repaying the loans. At that time, Jordan agreed upon a series of reforms to be implemented over a five-year period and obtained a loan from the IMF.

After the Gulf War and the return of 230,000 Jordanians following Iraq’s invasion in Kuwait, the government found itself in a difficult position again, and the unemployment rate having risen further. In the period from 1993 to 1999, the fund provided three-financing loans to Amman. The government then carried out major reforms, including privatisation, taxation, foreign investment, and favourable trade policies.

By the year 2000, Jordan had joined the World Trade Organisation (WTO), and a year later signed a free-trade agreement with the United States, managed to reduce public debt and restructure it. Jordan’s model reflects the fund’s ability to boost a country’s economy to become more powerful and stable so as to join the global economy’s active members.

Tanzania

There are several countries that the fund failed to assist, such as Tanzania. Investopedia wrote that the IMF tried in 1985 to transform Tanzania from a bankrupt, heavily-indebted socialist state to a powerful shareholder in the global economy, but the fund ran into a lot of obstacles that prevented this from happening.

The first steps taken by the fund were to reduce the trade barriers and the governmental programmes, and to sell the industries owned by the state. By the beginning of 2000, patients had started to pay for healthcare that was previously free of charge, despite the high rate of AIDS. The same happened with education, and the school enrolment ratio declined from 80% to 66% and the illiteracy rate increased to roughly 50%.

The per capita GDP declined from $309 to $210 in the period from 1985 to 2000. The website stated that the Tanzanian model reflects the organisation’s failure to recognise that the same strategy cannot be applied to all countries.

Tunisia

Tunisia is one successful model that received many loans from the IMF, most recently in the first half of 2016. Tunisia obtained a $2.8bn loan in the framework of a four-year programme that aims to support the country during the political transitional period. It also aims to maintain macroeconomic stability, boost growth, protect low-income citizens, and develop the private sector to achieve sustainable growth, and provide job opportunities.

Tunisia obtained a credit line worth $1.7bn from the IMF in 2013 that would last for a period of two years. The fund divided these loans into instalments on the condition that Tunisia will apply specific economic reforms before each instalment.

Tunisia has struggled to stimulate its economy amid a decline in tourism revenue following several terrorist attacks. The Tunisian parliament has approved two new laws within the reform package. One of these laws is related to banks, and the other supports the independence of the central bank, but there is still a need for other reforms.

Tunisia’s economy has fallen sharply after the 2011 uprising that ended the rule of former president Zine El Abidine Ben Ali. Economic growth in 2015 reached only 0.8%, affected by tourism’s decline.

Russia

Russia obtained a loan from the IMF in the 1990s, which we cannot describe as a successful experience. The BBC reported in 1999 that Russia had obtained many loans from the IMF that amounted to nearly $20bn, which made Moscow the largest borrower from the fund. However, Russia did not implement the required reforms.

The BBC said that the IMF had found itself in a difficult position as Russia took out many loans and the only way to ensure the repayment of them was to offer more loans.

At the time, the IMF was accused of intervening Russia’s domestic politics, resulting in even worse economic conditions for the country.

Ghana

Ghana is one of the models that is anticipated to succeed as the result of its loan. The country received an IMF loan in 2015, which included a three-year programme worth $918m. The programme aims to provide financial support to Ghana to enable it to re-stabilise its economy and strengthen its ability to create jobs. The IMF gave immediate financial support to the government worth $114.4m.

The transaction supported the government of Ghana’s efforts to curb inflation, bridge the budget deficit, and stabilise the currency, which are all factors that hindered economic growth in the west African country.

The consistent growth of the gross domestic product, equivalent to 8% per year, in light of a stable democratic political system made Ghana one of the best performing economies on the African continent.

Head of the IMF mission to Ghana Joel Toujas-Bernaté told reporters in Ghana that one of the main objectives of the programme is to achieve ambitious and lasting financial support. He added that the programme’s implementation will be reviewed twice a year.

Iraq

The executive board of the IMF approved a credit programme for Iraq in 2015. The programme grants Baghdad loans of up to $5.340bn over a three-year period, while the country grapples with two major problems: the Islamic State and falling oil prices.

The new credit programme is designed to support Baghdad’s efforts to counter the effects of the decline in global oil prices and ensure repayment of accumulated interest on debt.

The IMF approved the immediate disbursement of $634m.

This programme required Baghdad to take measures to enhance the effectiveness of anti-corruption laws and prevent money laundry, as well as countering terrorism.

Morocco

Morocco is one of the most recent countries to receive an IMF loan in North Africa. The IMF agreed to secure a liquidity line worth $3.47bn in a two-year agreement. It aims to support Morocco as it continues its economic reforms and enhances growth prospects.

This agreement comes in the framework of prevention and liquidity line, which is facilitated financing provided by the fund to its member countries to withstand external shocks due to the high uncertainty of the global economy.

This agreement helps the government continue its reforms schedule, originally penned to promote growth by addressing challenges such as high unemployment among youth (21% in 2015), low female participation in the workforce, and competitiveness enhancement in an external environment that is still unfavourable.

In conclusion, the success or failure of loan programmes is not guaranteed, but is stipulated to decisions and conditions.

Moataz Bellah Abdel-Fattahis an Egyptian professor of political science. He previously served as an adviser to the prime minister of Egypt, and professor of political science at both Cairo University and Central Michigan University.